UnRisk PRICING ENGINE 2

Example: Differing Methodologies and the Value of a Vanilla European Call Option

Load the Package

Create the Instrument

As we plan to plot the value of the option as a function of time to maturity and the spot price, the variable S is used to represent the spot price.

Adaptive Integration

Black-Scholes Analytic Valuation

Examining the Difference

The two plots have the same qualitative behavior. However, in the details there is some difference (as the Black-Scholes value discounts the dividends and, therefore, does not give the correct result). The following picture shows the difference between the two methods as a function of time to maturity and the equity price.

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